819 F.

2d 965

Unempl.Ins.Rep. CCH 21,860

Barry D. SHAW, individually and on behalf of all other
persons similarly situated, Plaintiff-Appellant,
v.
Ruben A. VALDEZ, in his capacity as Executive Director of
the Colorado State Department of Labor and Employment;
John
Kezer, in his capacity as Director of the Colorado Division
of Employment and Training, and Mike L. Baca, Gary D. Rose,
and John T. McDonald, in their capacities as Commissioners
of the Industrial Commission of the State of Colorado,
(Ex-officio Unemployment Compensation Commission of
Colorado), Defendants-Appellees.
No. 84-2791.

United States Court of Appeals,

Tenth Circuit.
May 26, 1987.

R. Eric Solem, Atty., Pikes Peak Legal Services, Colorado Springs, Colo.
(Daniel M. Taubman, Atty., Colorado Coalition of Legal Services
Programs, Denver, Colo., was also on brief), for plaintiff-appellant.
Christa D. Taylor, Asst. Atty. Gen., Denver, Colo. (Duane Woodard, Atty.
Gen., Charles B. Howe, Deputy Atty. Gen., and Richard H. Forman, Sol.
Gen., Denver, Colo., were also on brief), for defendants-appellees.
Jordan Rossen, Gen. Counsel, M. Jay Whitman, Associate Gen. Counsel
and Richard W. McHugh, Asst. Gen. Counsel, Intern. Union, UAW,
Detroit, Mich., for amicus curiae, Intern. Union, UAW.
Before HOLLOWAY, Chief Judge, and LOGAN, Circuit Judge, and
BRETT,* District Judge.
HOLLOWAY, Chief Judge.

Plaintiff Barry Shaw brought this action against the Executive Director of the
Colorado Department of Labor and Employment, the Director of the Colorado
Division of Employment and Training, and three members of the Colorado
Industrial Commission.1 In his first amended complaint for declaratory and
injunctive relief Shaw alleged that Colorado's procedure for administering
unemployment compensation benefits violated the Fourteenth Amendment's
Due Process Clause and the "fair hearing" requirement of 42 U.S.C. Sec. 503(a)
(3), due to lack of adequate notice of the issues to be tried.2

In his Memorandum Opinion and Order, the district judge found that
entitlement to unemployment compensation is a "sufficient interest to require
some due process protection." Under the 3-part test of Mathews v. Eldridge,
424 U.S. 319, 334-35, 96 S.Ct. 893, 902-03, 47 L.Ed.2d 18 (1976), the court
held that the private interest in receiving unemployment benefits is significant
and can be a compelling need. The court then focused on the risk of an
erroneous decision and the governmental cost of providing the type of notice
the plaintiff contends is required.

As to the risk of an erroneous decision, the court found that from a reasonable
reading of the notice, all issues concerning the reasons for termination of
employment could be considered and that it was not unreasonable to expect a
claimant or employer to be present with appropriate proof; and that assuming
the pleaded facts to be true, the employee was not unfairly disadvantaged. As to
the governmental cost factor, the judge noted the volume of appeals as set out
in the plaintiff's motion and memorandum for class certification--for example,
1,449 appeals filed for hearings in December 1983--and said that such volume
required expeditious proceedings. The court also pointed out that no federal
claim is stated because of the availability provided by the Colorado statutes of
judicial review of Industrial Commission decisions which can correct
substantive mistakes in the notice and hearing.

The district judge concluded that no claim for relief was stated and dismissed
the complaint. This appeal followed.

I.
The factual background
A.
5Colorado's administrative procedure for reviewing

6unemployment compensation claims

7

The federal unemployment compensation program is implemented and

administered by the states. 42 U.S.C. Sec. 501 et seq. (1982). Colorado's
program is initiated when an applicant files a written claim at one of the public
employment offices located throughout the State. 7 Code of Colo.Regs. 2.1.2.
The Division of Employment and Training (the Division) then notifies the
employer of the claim and designates a deputy to make a preliminary decision
regarding the applicant's eligibility for benefits. Colo.Rev.Stat. Sec. 8-74-102
(1986). If the claim is disputed, either party can obtain a hearing by filing an
appeal with the Division. Colo.Rev.Stat. Sec. 8-74-103 (1986); 7 Code of
Colo.Regs. 11.2.3. At that point, the Division will notify both parties of the
appeal, advising them of the statutory sections cited by the deputy.

The notice must specify the time and place of the hearing, but need not list the
specific issues to be raised. 7 Code of Colo.Regs. 11.2.4. Indeed, the hearing
officer can inquire into "any issue relevant to the disputed claim."
Colo.Rev.Stat. Sec. 8-74-103(1) (1986); see 7 Code of Colo.Regs. 11.2.9 ("all
relevant issues shall be considered and passed upon" by the hearing officer).
After the hearing officer makes his decision, the parties can appeal to the
Industrial Commission and, eventually, to the Colorado courts. Colo.Rev.Stat.
Secs. 8-74-104, 8-74-107 (1986); see also 7 Code of Colo.Regs. 11.2.15.

B.
9Plaintiff Shaw's allegations regarding his experience with
the Colorado procedure
10
11

The first amended complaint alleges the following facts, which we must accept
as true in light of the dismissal under Rule 12(b)(6), F.R.Civ.P.:

12

After being discharged by Merritt Packing and Crate Services, Inc., Shaw
applied for unemployment benefits at a local job service center. The employer
protested the claim, advising the Division that Shaw had been discharged
because of "undependable performance," "incomplete paperwork," and "poor
attitude." I R. 85. However, the employer did not send Shaw a copy of this
letter or advise him of the reasons for his discharge. I R. 80.

13

The Division designated Deputy Quaranto to review the claim. The Deputy
found Shaw eligible for a full award of benefits, concluding that he had been
discharged because of a physical inability to perform his job as a furniture

handler. I R. 80-81, 86, 89-90. The employer appealed to the Division, stating
only that it "[disagreed] with the deputy's decision." I R. 81, 87. The Division
sent Shaw a "Notice of Hearing Before a Referee," which stated:A hearing
before a Referee of the Colorado Division of Employment is conducted to
determine why the employee was separated from his job and whether he is
entitled to, or is qualified for benefits. All issues and factual matters affecting
claimant's eligibility and qualifications for benefits will be heard under Chapter
8 of the Colorado Revised Statutes of 1973, as amended.
14

I R. 81, 88. This notice was issued pursuant to 7 Code of Colo.Regs. 11.2.3. and
11.2.4., which required only that the "time and place" of the hearing be stated.
This type of a general statement as to issues and factual matters has been
approved in Colorado and appears to be the State practice. See, e.g., Ward v.
Industrial Commission, 699 P.2d 960, 969 (Colo.1985); Yellow Front Stores,
Inc. v. Industrial Commission, 694 P.2d 882, 884 (Colo.Ct.App.1985); Marlin
Oil Co. v. Industrial Commission, 641 P.2d 312, 313 (Colo.Ct.App.1982);
Anderson v. Industrial Commission, 29 Colo.App. 263, 482 P.2d 403, 405
(1971).

15

The hearing was held on September 8, 1983, before Referee Bugg. Shaw
appeared pro se, having no representation. The only two witnesses were Shaw
and his former manager, John Runningen. When the employer's testimony was
given, it went beyond the ground of discharge mentioned to Shaw when he was
terminated, namely that "his work performance was slow." I R. 80. Runningen
testified that Shaw had been discharged because he was undependable and
slow, that he also caused dissension among other workers, that he failed to
complete necessary paperwork, and that he failed to properly load all of the
furniture on certain assignments. I R. 81, 91-92, 93, 97-98. The Referee
reversed the Deputy's decision that Shaw was entitled to a full award,
concluding that Shaw was discharged for failure to meet job performance
standards; that although Shaw experienced back problems, those physical
problems should have no effect on his ability to complete the required
paperwork accurately or make certain that his truck was properly loaded with
supplies before he left the premises on a job. I R. 121. On these conclusions the
Referee reversed the Deputy's decision and denied Shaw all benefits
attributable to the employer or 25 times his weekly benefit, whichever was less,
inter alia.3 After an unsuccessful appeal to the Industrial Commission, Shaw
brought this suit in federal court. I R. 82, 122.

II.
The "fair hearing" requirement

16

In reviewing a dismissal for failure to state a claim, we must accept as true the
plaintiff's well-pleaded factual allegations and all reasonable inferences must be
indulged in favor of the plaintiff. Swanson v. Bixler, 750 F.2d 810, 813 (10th
Cir.1984). Dismissal is appropriate only if "it appears beyond doubt that the
plaintiff can prove no set of facts in support of his claim which would entitle
him to relief." Schoultz v. Monfort of Colorado, Inc., 754 F.2d 318, 321 (10th
Cir.1985) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02,
2 L.Ed.2d 80 (1957)), cert. denied, --- U.S. ----, 106 S.Ct. 1259, 89 L.Ed.2d 569
(1986). Viewing the complaint in this light, we conclude that the district court
erred in dismissing for failure to state a federal claim. We begin our inquiry by
turning to the statutory issue arising from the facts as pleaded, which is whether
Colorado's notice procedure deprived Shaw of a "fair hearing" within the
meaning of the Social Security Act, 42 U.S.C. Sec. 503(a)(3) (1982). We hold
that it did.

17

As the Supreme Court has said, "[i]t goes without saying that the requirements
of a fair hearing include notice of the claims of the opposing party and an
opportunity to meet them." FTC v. National Lead Co., 352 U.S. 419, 427, 77
S.Ct. 502, 508, 1 L.Ed.2d 438 (1957); see also Goldberg v. Kelly, 397 U.S.
254, 267-68, 90 S.Ct. 1011, 1020-21, 25 L.Ed.2d 287 (1970). We think the
Colorado procedures, as they are framed by the complaint, failed to provide
such notice. As noted, the notice sent to Shaw gave only a broad unspecified
statement that "all issues and factual matters affecting claimant's eligibility and
qualifications for benefits will be heard...." Technically, of course, this notice to
Shaw covered all issues relating to his termination and eligibility for benefits.

18

However, since Shaw never received the employer's protest letter, he was faced
with the virtually impossible task of preparing for all issues that might arise
under Colorado's complex statutory scheme. For example, to prepare for the
discharge issue alone, Shaw would have had to conduct factual research into
more than twenty categories of partial or total disqualification. See
Colo.Rev.Stat. Sec. 8-73-108(9)(a) (1983 supp.) (recodified in 1984 at Sec. 873-108(5)(e)). Moreover, he would have had to examine fifteen statutory
subsections providing for a full award. Colo.Rev.Stat. Sec. 8-73-108(4) (1986).
Clearly, the generic notice provided Shaw was, in substance, no notice at all.
See Adams v. Harris, 643 F.2d 995, 1000 (4th Cir.1981) (Winter, J.,
dissenting).4 Furthermore, Shaw alleges that the employer's only explanation
for the discharge, prior to the claim for benefits, was that "his work
performance was slow." I R. 80.

19

The defendants argue, however, that Shaw could have obtained notice of the
allegations by obtaining a copy of the employer's protest letter through

discovery. That suggestion does not cure the defect in Colorado's notice
procedures. Under Colorado law, a claimant can seek discovery prior to his
hearing only if he is able to make a showing of "necessity" to the satisfaction of
the Chief Appeals Referee or his designee.5 7 Code of Colo.Regs. 11.2.8.
However, even if Shaw had made such a showing and received a copy of the
protest letter, he still would not have known about all of the employer's
allegations. The letter alleged only: "1) undependable performance; 2)
incomplete paperwork; and 3) poor attitude." I R. 85.6 The hearing, however,
involved additional allegations, some of which the Referee found persuasive.
For example, he concluded that Shaw had failed to properly supervise the
loading of trucks although that issue was not included in the protest letter. I R.
121. We think Shaw was entitled, as a matter of right, to know in advance all of
the factual and legal issues that would be presented at the hearing. On the basis
of the averments of Shaw's complaint, Colorado's notice and discovery
procedures were insufficient to satisfy that requirement of basic fairness
guaranteed to Shaw.
20

We note that the district court relied in part on the availability of state judicial
remedies, citing Cohen v. City of Philadelphia, 736 F.2d 81 (3d Cir.), cert.
denied, 469 U.S. 1019, 105 S.Ct. 434, 83 L.Ed.2d 360 (1984), for the
proposition that "[w]here substantive mistakes in the notice and hearing in a
given case are subject to correction by the state's judiciary, no federal claim is
created." I R. 60. The reasoning of that case is inapplicable here because the
deprivation of unemployment benefits resulted from an established State
procedure, rather than a random and unauthorized act of a state official. See
Stana v. School District, 775 F.2d 122, 129-30 (3d Cir.1985); Berlanti v.
Bodman, 780 F.2d 296, 300-02 (3d Cir.1985); Brown v. Trench, 787 F.2d 167
(3d Cir.1986); see also Logan v. Zimmerman Brush, 455 U.S. 422, 435-36, 102
S.Ct. 1148, (1982).

21

Lastly, we are not persuaded by the consideration that the volume of appeals in
such cases required expeditious proceedings, without a more specific notice.
The State could afford a fair hearing premised on fair notice by a brief
statement of particular factual and legal points to be raised at the hearing, and
here the protest letter itself could have been furnished with a warning to the
parties that there would be no "issue switching" at the hearing. See Camacho v.
Bowling, 562 F.Supp. 1012, 1024 (N.D.Ill.1983); Pregent v. New Hampshire
Department of Employment Security, 361 F.Supp. 782, 796-97 (D.N.H.1973),
vacated on other grounds, 417 U.S. 903, 94 S.Ct. 2595, 41 L.Ed.2d 207 (1974).
And we note further that while the burden on the administrative process of a
particular procedural safeguard should be considered, Eldridge, 424 U.S. at
335, 96 S.Ct. at 903, administrative "speed and efficiency" cannot justify a

failure to observe basic fairness in procedure. See Stanley v. Illinois, 405 U.S.
645, 656, 92 S.Ct. 1208, 1215, 31 L.Ed.2d 551 (1972).
III.
Conclusion
22

In sum, we hold that Shaw's complaint states a meritorious claim that the
Colorado procedure for administering unemployment benefits violated the "fair
hearing" requirement of 42 U.S.C. Sec. 503(a)(3) due to lack of fair notice of
factual and legal issues to be faced, without deciding, of course, whether Shaw
should prevail after further proceedings developing the merits and defenses as
to his claim.7 Accordingly, the district court's judgment of dismissal is
REVERSED and the case is REMANDED for further proceedings.

The Honorable Thomas R. Brett, United States District Judge for the Northern
District of Oklahoma, sitting by designation

The complaint was filed as a class action on behalf of certain other Colorado
residents "[w]ho have been denied unemployment compensation benefits or are
threatened with denial of unemployment compensation benefits without
adequate advance notice of the issues to be raised at their hearings." I R. 79.
The district court, however, did not rule on the motion for class certification,
and the proper outcome of that motion is not at issue in this appeal

The statutory provision appears in 42 U.S.C. Sec. 503(a)(3), reading as follows:

The Secretary of Labor shall make no certification for payment to any State
unless he finds that the law of such State, approved by the Secretary of Labor
under the Federal Unemployment Tax Act, includes provision for-***
(3) Opportunity for a fair hearing, before an impartial tribunal, for all
individuals whose claims for unemployment compensation are denied....
Because of the way the statute is structured, we have considered the question
whether a private cause of action is available to enforce the "fair hearing"
requirement, although no issue is presented on this point to us. We conclude
that a private cause of action is available in this case. See Jenkins v. Bowling,
691 F.2d 1225, 1228 (7th Cir.1982); Brewer v. Cantrell, 622 F.Supp. 1320,
1322-23 (W.D.Va.1985), aff'd without published opinion, 796 F.2d 472 (4th

Cir.1986).
3

The Referee relied on Colo.Rev.Stat. Sec. 8-73-108(9)(a)(XX) (1983 supp.)

(recodified in 1984 at Sec. 8-73-108(5)(e)(XX)). That statute provides for a
reduction of benefits if the claimant was discharged for "excessive tardiness or
absenteeism, ... or failure to meet established job performance or other defined
standards."

We note that the United States Department of Labor has issued elaborate
guidelines for states to observe in conducting their hearings regarding
unemployment benefits. In those guidelines, the Department warns states
against turning their hearings into "fishing expedition[s] to seek out new
issues." New issues can be raised, but only if they are "germane to the appealed
issue." If they are not, "the Referee should advise both parties of the new issue
and their right to an adjournment so that they can adequately prepare for it."
U.S. Department of Labor, A Guide to Unemployment Insurance Benefit
Appeals: Principles and Procedures 10 (1970)
Colorado's procedures violate these guidelines by allowing the hearing officer
to inquire into any issue regarding the claimant's eligibility for benefits. See
Yellow Front Stores, Inc. v. Industrial Commission, 694 P.2d 882, 884
(Colo.Ct.App.1985); Marlin Oil Co. v. Industrial Commission, 641 P.2d 312,
313 (Colo.Ct.App.1982); Anderson v. Industrial Commission, 29 Colo.App.
263, 482 P.2d 403, 405 (1971).

The defendants argue that Shaw had a statutory right to discovery under
Colo.Rev.Stat. Sec. 8-72-107 (1986). That section states in pertinent part:
Each employing unit shall keep true and accurate work records, containing such
information as the division may prescribe.... Any interested party or his
authorized representative, in preparation for and prior to any hearing on a claim
governed by articles 70 to 82 of this title, shall be entitled to examine and, upon
the payment of a reasonable fee to the division, obtain a copy of any materials
contained in such records to the extent necessary for proper presentation of his
position at the hearing. (Emphasis added)
It is not at all clear, however, whether Shaw would have benefitted by this
discovery tool after making a showing of "necessity." First, it is unclear
whether the protest letter at issue is the sort of "work record" contemplated by
the statute. The Colorado Division of Employment and Training does require
the employer to include the "reason [that the claimant was] separated from
employment," but it does not say whether that requirement would include a
protest letter like the one filed by Shaw's employer. See Colorado Department
of Labor and Employment Division of Employment & Training, Colorado

Employer's Handbook 5-6. Of course, we cannot determine whether the letter

was actually included in Shaw's "work record" because it was not designated as
part of the Record on Appeal. Fed.R.App.P. 10(b)(3). As a result, we are
unable to ascertain what benefit, if any, Shaw would have had by attempting to
use Sec. 8-72-107 as a discovery device.
6

Arguably, this letter was so ambiguous that it amounted to a violation of the

division's own internal rules. Under those rules, an employer wishing to protest
a claim must "state reason[s] for separation clearly." Colorado Department of
Labor and Employment Division of Employment & Training, Colorado
Employer's Handbook 31. The Division explains:
If [the claimant] was separated from his job for any reason but lack of work,
[the employer] must furnish the Division with detailed information. [The
employer's] statement should contain all important facts, such as names of
witnesses, exact dates, times, and places in which incidents occurred, reference
to union contracts, commission agreements, medical reports, and other pertinent
documents.
[The employer is] required to tell [his] story completely. The claimant is also
required to state his case fully.
If [the employer] fail[s] to provide separation and other work history
information when requested, [he] lose[s] [his] right to protest the Division's
decision regarding the worker's claim for benefits.
Id. at 31-32.

We rest our ruling on the statutory claim, although both the "fair hearing" issue
under the Act and the constitutional question appear to be indistinguishable in
this instance. See Ross v. Horn, 598 F.2d 1312, 1318 n. 4 (3d Cir.1979), cert.
denied, 448 U.S. 906, 100 S.Ct. 3048, 65 L.Ed.2d 1136 (1980); Camacho v.
Bowling, 562 F.Supp. 1012, 1020 (N.D.Ill.1983). We note, however, that
several district courts have invalidated similar administrative procedures on due
process grounds. See Camacho v. Bowling, 562 F.Supp. 1012, 1024-25
(N.D.Ill.1983); Steinberg v. Fusari, 364 F.Supp. 922, 936 (D.Conn.1973),
vacated on other grounds, 419 U.S. 379, 95 S.Ct. 533, 42 L.Ed.2d 521 (1975);
Pregent v. New Hampshire Dep't of Employment Security, 361 F.Supp. 782,
796 (D.N.H.1973), vacated on other grounds, 417 U.S. 903, 94 S.Ct. 2595, 41
L.Ed.2d 207 (1974). The Colorado Supreme Court, however, recently rejected
a similar constitutional challenge in Ward v. Industrial Commission, 699 P.2d
960, 969 (Colo.1985)